Enterprise Risk Management (ERM) is the process of planning, organizing and leading the organizational activities in order to achieve positive responses and minimize risk and negative impacts related to organizational capital and earnings.
ERM includes the assessment of financial, strategic and operational risks in order to obtain organizational business factors associated with other accidental losses.
In recent years, external factors such as competitive advancements, technologies, and other changes have fueled the interest level of the organizations. internal factors like corporate culture and organizational nature also impact the ERM factors of the organization.
Organisational factors can directly affect ERM essentials easily. This can help organizations by shifting their corporate culture from one that could focus on one target on making business compliance decisions and obligations.
Types of Enterprise Risk Management
There are different types of Enterprise risks that any business might face. Here are a few examples:
●Financial – A company has to account for things like non-payment (bad debt) or a rise in the interest rates on business.
●Compliance – Businesses have to handle their government risk, health, safety and privacy regulations. For instance, physicians have to comply with HIPAA (Health Insurance Portability & Accountability Act) regulations to protect patients’ privacy.
●Operational – Businesses also have to handle operational issues with the help of ERM such as power loss, theft, and breakdown
●Strategic – Enterprises struggle with many strategic risks, for example they need to consider what happens when they introduce a new product that is an utter failure or any new competitor launches new products or services in the market or the product’s price would be undercut by 20%.
Enterprise Risk Assessment & Mitigation
Enterprise risk assessment is one of the major things that needs proper planning. What do we do if something happens and is it worth worrying about? Given the fact that there are multiple categories of risks to plan for, we have to prefer and prioritize our efforts and put in place routine procedures and policies to minimize exposure.
It is necessary to look into the process and make it correct by placing routine procedures and policies to minimize the exposures. ERM also helps to look at our processes, people and technology by determining your risk appetite, which controls the level of risk by accepting new strategies to control uncertainty.
Risk Mitigation Strategies to increase the value of ERM
Active risk assessment and mitigation is the process which is begun with the proper assignment and management of enterprise risk factors. It can be done effectively by reporting and analyzing the risk at universe level. Risk mitigation opportunities are proactively recognized during reporting and reviewing different organizational phases of ERM phases.
Many organizations look at enterprise risk management and strategies as a risk identification function. During the active process, there should be several risk mitigation strategies that could be used to prioritize risk, as per requirement:
Acceptance: Auditors and managers should accept and deliberate the decisions to understand the risk and not make any further plan for incomplete execution. It will help to reduce and control the uncertain enterprise risk.
Monitoring: Reviewing the risk factors is another important change and characteristics that may influence the impact of the risk.
Avoidance: Changing the risk responses and processes to eliminate uncertain elements.
Control: Develop further risk mitigation plans and in order to minimize the risk and uncertainty.
Considerations to increase the Value of ERMs
The change in the perception of ERM functions and value can be viewed as an organizational risk expert. By considering the following steps, the values of ERM can be increased:
1.Collaborate with affected risk owners
Risk owners live their business risk on day-to-day business operations. They know how to mitigate risks for enterprises to control uncertain activities by maintaining interest in working with all efforts.
2.Define the plan, resources, timing and deliverables
Sometimes, it is as simple as defining where you are expecting to go with factors that affect your business and ERM strategies. So it is necessary to define a plan, business strategies allocate resources properly in order to exhibit values to the organization.
3.Risk Mitigation Approach understanding
Understanding the elimination of risks is also important. Focusing on the efforts that will take minimal time and resources to remediate the risk. But here it is necessary to demonstrate the risk, in some illustration, we can say that, it may be prudent but accepting risk in its current state. Accepting the risk to manage ERM values should make strategic sense.
All your efforts related to focusing on risk mitigation have profoundly impacted the ongoing assessment and measurement of your business risk environment. Be sure, you directly connect and link your efforts with your risk management and mitigation strategies with the ongoing risk assessment. You can share your significant outputs and results of the prioritization process with stakeholders to experience the beneficial impacts on the organizational profiles and priorities.
By taking that initial step to focusing on the risk assessment and mitigation factors of enterprises, you have to keep in your mind these above mentioned points, it will help you out to transform the risk operations and functions to operate Enterprise Risk Management factors and enhance its value to your organization.